Myanmar’s Military Intervention Sparks Fear of Third Forex Rate

Myanmar’s military government has been cracking down on the unofficial foreign exchange market to prevent further depreciation of Myanmar Kyat (MMK). But amidst all interventions, observers worry that a third, parallel market exchange rate may emerge.

After the vicious coup d’état by Myanmar’s military in 2021, the junta government decided to set a fixed exchange rate for the country’s local currency, at MMK 2,100 to one US dollar last year.

However, authorities did allow parallel market-rate conversions and between companies authorized to hold foreign currencies. This has led to a widening of currency exchange rate between the market and the one made official by the government, leading to the emergence of a dual foreign exchange market. 

To combat this, the Central Bank of Myanmar rolled out an online foreign exchange platform hosted by private-sector banks on 22 June, where businesses can report currency trade for authorization. Any other rate not approved on the platform would be deemed unofficial.

On the same day, exchange rates on the platform fluctuated between MKK 2,920 to MKK 2,922, while local money exchangers were able to provide a more lucrative rate of MMK 3,000 to customers. Not long after the platform was rolled out, authorities moved against 50 people in Yangon and Mandalay, for the involvement in illegal international remittances and currency trade.

According to Nikkei, recent U.S. sanctions against two Myanmar state-owned banks has accelerated fears about a tighter inflow of foreign currencies into the country, causing the military government to use their market intervention powers to prop up the MMK.

With Forex trading via banks limited in the country, a majority of its currency exchanges happen in cash, making it difficult for Myanmar’s Central bank to curb black market rates. If authorities coerce money exchangers to join a new forex platform by private banks, a third exchange rate might emerge. 

In Laos, the Bank of Lao PDR has issued new regulations to commercial banks this month, allowing for more flexibility in setting daily foreign currency exchange rates, so as to close the gap between official and unofficial market rates for LAK. Vientiane police has also amped up its efforts to to shut down unauthorized foreign exchange shops and prevent inflated currency exchange rates in the market.